Freezing the Money Purchase Annual Allowance (MPAA) will increase the number of basic rate taxpayers aged 55 and over who face a squeeze on tax relief on their future pension contributions, according to Just Group.

The retirement specialist said keeping the MPAA at £4,000, along with changing tax thresholds, meant that even those contributing the minimum 8 per cent of their salary to a defined contribution (DC) workplace pension could start to feel the squeeze due to pension contributions that exceeded the allowance.

Just explained that, in 2020/21, the marginal rate of income tax was 20 per cent on earnings up to £50,000 and someone earning that amount making an 8 per cent pension input would be within the £4,000 MPAA limit.

However, in 2021/22, the 20 per cent tax threshold is £50,270 and someone earning that amount making the 8 per cent contribution would have an input of £4,021, just above the £4,000 limit, meaning that the scheme member would face an annual allowance charge on the £21 excess.

Just Group communications director, Stephen Lowe, warned: “People currently contributing under the £4,000 limit could easily be caught in the future as they receive pay rises, job promotions or bonuses, or where they or their employer increase the amount being contributed to the pension, perhaps trying to maximise their funds in the run-up to retirement.”

He expressed concern that pension savers would not be aware of facing the MPAA charge and again used the opportunity to call for the government to shake-up the way in which the Pension Wise service is offered to those nearing retirement in the UK.

Lowe said: “It is not reasonable for policymakers to expect most people to be aware of and understand the complexities and consequences of the rules which impact their ability to keep saving into a pension.

“Nearly four in five pensions accessed by those aged 55+ each year without advice are missing out on the free, independent and impartial guidance they are entitled to from Pension Wise that could help them navigate these complex rules.”

Analysis released by Just in March showed that more than 1,000 pension savers became subject to the MPAA every working day last year, while the Association of British Insurers called on the government to scrap the MPAA in its Spring Budget in order to protect those who had been forced to use retirement savings during the Covid-19 pandemic.

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